One of the biggest news events in 2017 for those of us working in devops was hearing about abrupt changes at Etsy. In April, institutional shareholders, disappointed by Etsy’s low share price, ousted CEO Chad Dickerson, and under new CEO Josh Silverman, proceeded to slash the workforce and reduce costs. Many talented engineers that I happen to know personally as well as CTO John Allspaw himself were either fired or saw the writing on the wall and made for the exits.
These events were discouraging on a number of levels. First, Etsy’s world-class engineering and web operations team scattered to the winds. Allspaw and many others contributed a great deal to the discipline of web operations by applying lessons learned from improving reliability in other fields, such as transportation engineering and nuclear safety. More importantly, though, is that Etsy’s very existence shone a light on whether it’s possible to build a socially-responsible company within the constructs of the current venture capital, and by extension, capitalist system. What is the place of the social democratic entrepreneur within these confines?
Rachel Chalmers, ex-of Ignition Partners, once wrote a piece in Model View Culture giving all of us the straight talk on venture capitalism, with a bluntness that caused me to blush. Never before, and not since, have I heard a VC essentially state so clearly that their job is simply to redeploy capital from lower-performing asset classes into (hopefully) higher-performing ones. VCs don’t care about your ideas. Or rather, they only care about them in the abstract, as a means to an end to derive returns exceeding those realized from investing in, say, Treasury bills.
If you haven’t read Chalmers’ piece, and you are either an entrepreneur or a startup employee, you must. She lays out an accurate but depressing view of the venture-funded universe, where starry-eyed entrepreneurs with promising ideas about how to change the world will have those ideas sacrificed at the altar of Wall Street’s expectations. There is simply no way in the current venture system for companies to aim for an exit with, say, a respectable level of return on investment and a moderate array of other benefits. It is unicorn or bust.
It’s not just venture capital that is at fault, since the problems only compound when companies enter the public markets. Corporate values of sustainability, such as those that Etsy tried to establish, are fundamentally incompatible with unbounded growth, or even double-derivative growth-of-growth (a concept that I have long derided as unnatural). It was obvious that Etsy’s values would have to change, and that is what is happening now. Indeed, this outcome was preordained the instant Etsy’s founders decided to take venture capital money way back in 2006 with the first $1M Series A; as David Heinemeier Hansson (dhh) says, “Etsy corrupted itself when it sold its destiny in endless rounds of venture capital funding. This wasn’t inevitable, it was a choice.”
Unfortunately, it’s hard to see a way out for entrepreneurs. Bootstrapping, of course, is always an option, as Heinemeier Hansson advocates. But it’s difficult to see how to do that and still compete with peers that vastly outcapitalize you by playing within the existing system. After all, 37Signals (now Basecamp) has negligible market share in the categories it plays in, and shed a number of assets in an attempt to hang onto even the tiny market share Basecamp has in project planning software. Despite Heinemeier Hansson’s mockery of those who would say otherwise, capitalism as it currently exists is the problem, when it is a system that fails to develop corporate objectives other than capital accumulation.
Etsy’s fate can be examined against the broader backdrop of 2017’s political events. It is a lighthouse example of the choices of political and economic system before us. Trump is right: the system is rigged. The trouble is that he and rest of the 1% are doing the rigging, only now, post-tax “reform” bill, it is blatant. When oligarchies are so obvious about their aims, it portends either the beginning or the end of an era. Should it be the beginning, we can expect Americans to sit meekly by as the remainder of the social safety net is eviscerated in order to recreate a system of inequality not seen since the Gilded Age. Or if it’s the end, the current political situation is the last gasp of the small number of powerful people who would benefit from the escalation of structural inequality in the United States.
Despite the bad news coming out of Washington, it’s hard not to believe that change is in the air when even Silicon Valley luminaries such as Eric Ries, in his new book The Startup Way, argue for more long-term thinking and building companies where maximizing shareholder value is not just about quarterly profits. A major change in economic and political system will, obviously, come far too late for companies like the one at the heart of this essay. Etsy was a noble experiment in whether it was possible to build a social-democratic corporation within the confines of a capitalist system, and Chad Dickerson & team should be proud that they were able to hold the barbarians at the gate for so long. But the company’s fate was preordained the moment that it took venture money. Etsy, however, showed us a path to what’s possible. Perhaps in a couple of generations, once significant structural political and economic change has been undertaken, another company will be able to try again.